Refinery-petrochemicals integration: your questions answered
Exploring the transformation of the downstream landscape
VP Refining, Chemicals & Oil Markets
VP Refining, Chemicals & Oil Markets
Alan is responsible for formulating our research outlook and cross-sector perspectives on the global downstream sector.
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With petrochemical demand growth resilient and the energy transition putting pressure on transport fuel demand, the role of integrated refinery-petrochemical sites will only grow. How does integration alter the competitive position of a site? And what are the threats to its value?
We explored these questions and more in a recent webinar, Refinery-petrochemical integration is transforming the downstream landscape. Fill in the form for a complimentary copy of the presentation slides, including links to the webinar replay. Or read on for our responses to some of the questions raised in the Q&A session, and in our discussions with customers.
The questions have been grouped into three themes:
- Competitive position improvement
- Investment economics
- Impact of faster adoption of chemical recycling
1. Competitive position improvement
How does refinery-petrochemical integration alter the competitive position of a site?
Both refiners and chemical producers must become more efficient, less carbon intensive and re-configure as the energy transition progresses. In a global commodity environment, only the strongest will survive. The only way forward is to make a site more competitive and differentiated from its peers.
Margins for simple or complex standalone refiners will remain challenged for at least the next decade and beyond. Capital investments to shift towards a deep conversion configuration will improve competitiveness, giving these sites a much higher chances of survival.
Returns on such investments will be sub-par as volume and value growth comes from chemicals. The real value-add comes in a move towards the second-generation integrated sites with >40% chemicals output. These sites are extremely competitive and will be the last man standing in any low margin/low transport fuels demand environment.
What’s the best way to achieve refinery-petrochemical integration?
There are several ways for refiners and chemical producers to integrate. There is no one-size-fit-all option. The best option needs a holistic approach to evaluate the choices of crude, products, configurations and technologies.
Having a competitive source of feedstock generation from refining, coupled with an efficient asset to convert that feedstock into chemicals is key to capture synergies and improve overall competitive position.
How can the value of integration be assessed? What are the threats to its value?
The value of integration is not static. It changes over time depending upon the pricing environment in refining and chemicals markets, and the relative values of fuels/chemical over time.
A weaker chemicals margin environment will reduce the overall integration benefit. Risks could emerge from increased plastic bans and recycling initiatives that could reduce petrochemical feedstock demand. The chemicals market is growing faster than fuels, but in absolute terms is much smaller than fuels, so over-investment is a real possibility which could erode margins.
Exploring site competitiveness and relative competitive position in any margin environment will be important. Our REM-Chemicals offering can help to assess the competitiveness of integrated refinery-petrochemicals assets around the world.
2. Investment economics of refinery-petrochemicals integration
Which metrics must be interrogated to assess the economics of investment – and how?
One of the main questions for any site undertaking an investment project is: do the investment economics make sense?
REM-Chemicals provides net cash margins (NCM), on a US$/bbl basis, for 550 standalone refining sites and 210 integrated sites globally. NCM is synonymous with EBITDA or site earnings. REM-Chemicals users can not only examine competitive position improvement versus a peer group but can also interrogate NCM and EBITDA pre- and post-investment to see how profitability changes. These data inputs are invaluable to work out return on investment for capital employed, and this approach works well for brownfield upgrades and greenfield projects.
What’s the capex requirement for a second-generation integrated site?
In the webinar, we demonstrated that capex requirements are high for new second generation integrated sites. As an example, the entire Hengli site is reported to have cost US$20 bn – though it did benefit from capital borrowed at a low interest rate.
Even though these sites are very strong on an earnings basis, their returns could be challenged given the high initial capex requirements. Watch the webinar replay to find out more about the earning potential of sites upgrades and greenfield projects. Fill in the form for complimentary access.
3. Impact of faster adoption of chemical recycling
What does the rise of chemical recycling mean for the integration trend?
Chemical recycling is one of the hottest topics in the plastics value chain today, with a huge amount of intellectual energy and investment flowing into the area. Participants across the sectors – from refining, through to consumer facing brands – see it as playing a key role in improving sustainability and recapturing value from discarded materials.
The petrochemical industry is facing increasing environmental pressure to reduce plastic waste through increased recycling. Management of plastic waste is at the centre of the debate, but as an energy-intensive industry focused on processing hydrocarbon inputs, concerns extend to its carbon emissions and wider environmental footprint. In the polyolefin sector, around 30-35% of polyethylene is used for single-use consumer products, which could be potentially impacted by recycling regulations.
Integrated sites are well positioned to adapt to the impact of chemical recycling. They have the refining process technologies that can be used to lower the overall capital investment, plus the yield flexibility to readily incorporate this additional feedstock.
How will increased chemical recycling affect petrochemical feedstock demand?
Europe is leading the way, with the potential for chemical recycling to provide up to 10% of the steam cracker feedstock requirements by 2040. In our base scenario, our global outlook incorporates 10 million tonnes of recycled polyethylene in 2030 and 30 million tonnes impacted in 2040. For polypropylene, the base case is 5 million tonnes impacted in 2030 and 10 million tonnes in 2040. For both monomers, this additional recycling is outweighed by overall demand growth, so petrochemical feedstock demand continues to grow.
Highly competitive integrated sites located in industrial clusters have the greatest optionality, so are expected to be the most resilient to accelerated energy and material transitions.
Explore this topic in more detail
What is the impact of refinery-petrochemical integration in different regions? Where is the highest diversity in the yield and type of integration? Is crude-oil-to-chemicals the only way to increase chemical yields? Watch the webinar replay to find out more.